LIN, Time Warner Settle Up

10/31/2008 8:00 PM Eastern

By: Linda Moss

After a messy month-long battle that included station blackouts, Time Warner Cable and LIN TV last week finally reached a retransmission-consent deal, with the broadcaster claiming it had been able to extract cash as part of the pact.

Details of the new agreement remained shrouded in secrecy, but it comes as Time Warner Cable undertakes carriage negotiations with other media companies that own broadcast outlets, including Univision and NBC Universal.

LIN TV CEO Vincent Sadusky talked briefly about the new contract, which covers analog and digital signals for 17 stations, during a third-quarter earnings call last Thursday, a day after the agreement was announced.

“The bottom line is we received the compensation that we set out to receive from Time Warner,” Sadusky said. “There's not much more to say than that.”

When asked by one Wall Street analyst, “Can you confirm that there will be cash payments in the Time Warner contract,” Sadusky said, “Yes.”

But Sadusky's comments were later rebutted by Time Warner. “They were very careful to say they got what they wanted, not what they asked for,” said Time Warner Cable vice president of public relations Alex Dudley.

During the dispute, LIN TV said publicly said that it was asking for a 30-cent monthly license fee for its stations.

Dudley wouldn't comment specifically on whether cash was part of the new LIN TV agreement, which includes confidentiality clauses.

But he said, “We did not hold out for four weeks without that television signal to not get a good deal. We spent a good deal of money getting antennas to our customers. We were prepared to hold out for the long haul here. We gave away quite a few antennas.”

The blackout left 15 stations pulled off cable and affected more than 1.5 million Time Warner and Bright House Networks subscribers in 11 markets.

In the past, cable operators have bought ad time on TV stations as part of the compensation in retransmission-consent deals, and at least one analyst believed that such buys were part of the new LIN TV-Time Warner pact.

“I don't know if they (LIN TV) got up to the 30 cents,” said SNL Kagan senior analyst Robin Flynn. “Even if they got 20, 25 cents, there's probably some component in there of ad buys.

“It's probably not just total cash, I wouldn't think. Given the amount of subs, it can be meaningful for LIN, in terms of their cash flow. It's cash that goes right to the bottom line.”

Sadusky said during the third-quarter call that Time Warner was a “significant advertiser” on LIN TV stations. And Time Warner forks over cash when it buys ads on stations, according to Dudley.

“This concept of measuring cash is a little bit flawed, because when we buy advertising from station owners we don't pay on credit, we pay cash,” Dudley said. “And we've always bought advertising from station owners. So there's always been an exchange of value back and forth in these agreements. It's not a one-way street here. So for them to come out and say, 'We got cash,' it's almost like us going out and saying, 'We got the TV signal.' ”

But Dudley declined to comment on whether Time Warner is buying ads, or paying license fees, as part of its new LIN TV pact.

In a report last week, Wachovia Capital analyst Marci Ryvicker wrote of the new deal, “We believe this should add $1.7 million to $8.1 million to LIN TV's revenue (assuming a range of five cents to 25 cents per subscriber per month); however, due to confidentiality agreements, we cannot confirm specific per subscriber numbers with management.”

The new LIN TV-Time Warner retransmission-consent deal covers analog and digital signals for 17 TV stations: 15 carried by Time Warner and Bright House Networks, whose old deals expired Oct. 2 and were pulled; and two stations in Norfolk, Va., whose deals with Time Warner are due to expire the end of the year.

The dispute had involved the three LIN TV stations that Bright House carries in Indianapolis and two it carries in Mobile.

“We ended it because we received what we got, and I'll spare you all of the drama that went into getting to our final result,” Sadusky told analysts. “But we got to the place that we wanted to be.”

Time Warner pointed out that the deal was struck a day before the start of the November sweeps, which set the ad rates for local TV stations.

“It is not a coincidence that this dispute was resolved on the eve of sweeps,” Dudley said. “There are other significant events, too … The timing of the resolution of this agreement was not coincidental.”

In the third quarter, LIN TV's digital revenue, which includes Internet advertising as well as retransmission-consent fees, increased 88% to $8.1 million, compared to $4.3 million in the same period last year.

For the fourth quarter, LIN TV is forecasting that digital revenue will be anywhere from $8.7 million to $9.2 million. That projection factors in the new Time Warner deal, according to Sadusky.

LIN TV, which reached a new retransmission-consent agreement for both its analog and high-definition signals with Charter Communications in the third quarter, now has retransmission-consent deals with every major cable, satellite and telecommunications company, according to Sadusky.

The CEO said it is hard to gauge the financial impact of the month-long blackout of his TV stations on Time Warner and Bright House systems.

“We lost Time Warner revenue,” Sadusky said. “They are a significant advertiser. But they are back now. So we lost at least a month's worth of Time Warner revenue. And then with regard to how much advertising actually did we lose over that month-long period, it's very challenging to quantify.”

As for the ratings impact of the stations being pulled from cable, it varied depending on the market, and how big a presence Time Warner has in a market, according to Sadusky.

In Indianapolis, for example, he said, “We actually saw ratings go up during the time period that we were off Time Warner. Now you'd say intuitively we would have gone up more, but the point is the impact wasn't all that significant.”

In Dayton and Austin, where Time Warner has a large footprint, Sadusky said, “The ratings impact was more significant. We saw advertisers really stay with us for the early part of the campaign. In the last couple of weeks, it definitely started to have more of an impact. But again, it's very challenging to quantify it.”

Next Time Warner faces what will likely be tough negotiations with Spanish-language broadcaster Univision, which is seeking retransmission-consent for its TV stations for the first time. Univision has said it will seek a $1 license fee for its stations.

“Time Warner I'm sure wanted to hold the line (with LIN TV), just because they have Univision coming up,” Flinn said. “But Univision is going to be asking a lot more than the 30 cents.”